Want a market in higher education? Here’s how

Ed Miliband is mooting a tuition fees cut, to a maximum of £6,000 a year according to reports. I graduate in 2016. If Labour wins the next election, I’ll be in one of only 4 cohorts to pay £27,000 for their education. If I’m really unlucky, I might get lumped with a graduate tax too.

It’s not my plight, however, that’s got Labour talking about tuition fees again. Instead, it’s the government’s admission that the current policy is likely to be more expensive than planned: official estimates suggest that 45 per cent of students will never pay back their loans. Just 3.6 per cent more and the new system would be more expensive than the old.

What’s gone wrong? In raising the tuition fee cap, the government expected that a market in degrees would emerge, with costs varying according to a course’s impact on earning potential. This hasn’t happened. Many courses are charging the full £9,000 a year, from those which definitely increase your earnings to those which definitely don’t – studying Engineering at Cambridge costs the same as doing Drama at East Anglia, but the risk of their graduates defaulting on their student debt is likely to differ.

There’s a market in private schools: some partake in a facilities arms-race; some adopt a ‘no frills, just A*s’ grammar school-esque model and others go bust. Why aren’t universities moving in this direction?

One problem is that students don’t see their loans as real money. My peers and I have never had a mortgage or worried about a credit card bill. We are told that we are soon to be ‘burdened by a mountain of debt’, but the phrase instils an abstract fear at best. We don’t know what being in debt feels like, let alone what it’ll feel like in three years’ time. It’s an attitude my parents’ generation find difficult to understand: how can you be blasé about £27,000? It’s hard for them to remember leaving school all those years ago, care- and debt-free.

There’s a market in private schools because parents pay the fees themselves, and so make value-for-money a prime concern. The way to create a market in university courses is to encourage those who can contribute towards the cost of their education to do so. At the moment, there’s no incentive to pay upfront if you can.

My friends insist that you’d be crazy not to take out a student loan. The old adage that ‘it’s the best value money you’ll ever lay your hands on’ still circulates. This is profoundly misleading: at interest rates of 3 per cent plus inflation, there’s nothing cuddly about a student loan. The government is scared of being accused of making university education the preserve of an economic elite, but it’s coming close to mis-selling student loans as a result. Loans are there to ensure that no one is stopped from going to university by their financial situation. It’s the government’s duty to impress this upon students: student debt is a last resort, not a default. If your family can help with either fees now or your first mortgage later, you shouldn’t assume that the second is the better choice.

If more students were paying out of their own or their parents’ pockets, the pressure on universities to make fees more reflective of course costs would increase. Engineering at Cambridge does not, in fact, cost the same to provide as Drama at East Anglia. This is obvious, but, in the current climate, not something about which my peers are particularly concerned.

If I (wrongly) assumed that all of my yearly £9,000 goes towards teaching me History, I’d be paying £93.75 per contact hour. It may be Oxford, but our lectures aren’t that good. My Engineering neighbour would be paying just £17.04.

Universities should produce breakdowns of where the fees go – what’s spent on teaching, facilities, pastoral care, exams… If huge sums go unaccounted for, financially-savvy students would look for a better deal elsewhere: a market would emerge.

The government shies away from such an approach because it doesn’t want to deter students from taking more expensive, shortage subjects like Physics and Chemistry. But this shouldn’t be a problem: these subjects could be subsidised. Applicant numbers for STEM degree subjects might even be boosted as a result – aspiring Scientists would realise what an amazing bargain they’re getting compared to us swizzled Arts students.

A general MBA can be obtained for as little as $6k and as high as $120k, according to DegreeRegistry.org. If students would do a little research, they would find that it is not nearly as expensive to get a college degree

Betty Rose

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perdix

The repayment of a university loan is effectively a means tested graduate tax. If you don’t earn reasonable money you don’t pay it. The “loan” will not directly affect your ability to borrow from a bank for other purposes.

Gwangi

Higher education is all just a business – and it’s all about selling degrees, in effect, to students who cannot fail, no matter if their work is copied and pasted, or if it is written in pidgin English to 11+ levels.
That is our brave new world of university egalitarianism which has created a dumbed down system into which grade inflation and corruption are embedded as firmly as stubborn ticks.
Of course, academics rely on income from foreign students so they adore them and pass them even if they wouldn’t pass a Brit student for the same level of work. Even worse are the branches of UK unis overseas – they do, literally, sell degrees sometimes.
The whole things really is a shambles. I never ever trust anyone’s qualifications any more and nor do any businesses – that is why they run their own recruitment schemes.

rtj1211

One of the things people should look at is the ‘profiteering principle’. There is absolutely no way that a labs-intensive, lecture-intensive subject like Engineering or Natural Sciences at Cambridge will cost the same to run as Drama at East Anglia. When I was at Cambridge, NatScis and Engineers effectively worked a full working week and actually were discriminated against in sporting terms as inter-college matches took place any day of the week, often when they had labs or lectures. Lectures on Saturday mornings were commonplace too.

What is likely to happen is that profit-seeking providers will identify the most ‘profitable’ courses to run (low cost to deliver and the prospect of high salaries for graduates), rather than educate people for functions which societies need (like engineers, doctors, scientists, teachers etc).

I am of the opinion that this is not going to benefit the whole student population, rather a small number of students and a subset of profit-driven providers.

Is the ‘free market’ actually the best solution for the UK society in this case??

That question needs arguing without dogma, either from the left or from the far right.

it’s a legitimate question to ask and one which is worthy of the interests of the majority being put before the greed of a small minority………..

thelastword

There is an unquestioned assumption here, that we want “a market for higher education”. I would argue that the purpose of a university is to transmit, and add to, the sum of the world’s knowledge; this may have positive effects on a graduate’s employment opportunities, but this should be seen as incidental. Does a market for higher education aid this? I would argue it attempts to solve a problem that does not exist; if the universities are underfunded then the state should meet their costs, they perform a socially desirable function and are valuable in and of themselves, not for their economic benefits. Tuition fees make students focus on the value of their degree towards their future earnings, not whether what they are studying is intrinsically valuable, and this, in my view, is not what universities should be concerned with. The more fees go up, the more we move away from the actual point of the HE sector.

ohforheavensake

Erm…. The £9000 fees are an example of the HE market in operation. For any good that has a perceived cultural value (and which is not measurable in normal economic terms, as education isn’t), there is no value in cutting the price. In fact, to compete in the market, you have to raise your prices; there’s simply no market value in giving the impression that one university’s education is worth less than another’s.

So, even if universities produced a breakdown of fee costs, the pressure of the market would still tend to push fees upward. This is what’s happened in the States.
Thing is, this was one of the predicted outcomes of the new scheme (alongside an increased RAB). Those predictions have come true; market forces have dug HE into a hole- and your solution is to keep on digging.

Teacher

Tuition fees are only part of the cost of a degree as accommodation adds upwards of another £6000 a year and then living costs are on top of that taking the full expense of a degree to about £60,000. Without a guaranteed graduate job at the end of the course this debt is very poor value. As a parent I would only be prepared to countenance this sort of eye watering expense if a degree conferred exclusivity in the job market. However, when the policy is for half the cohort to have a degree it offers no real financial advantages and is poor value for money. I would not be remotely tempted to borrow against my assets to stump up the price of tuition fees and other costs while I might well do this for a mortgage deposit.

David J Timson

The bulk of your tuition fees goes on staff salaries. So, actually, your history degree “costs” much the same as your friend’s engineering degree (since you are probably taught by roughly the same number of people, albeit for less time). “Staff” doesn’t just include the academics, but all the support staff, technicians, librarians etc too. Indeed Drama at UEA costs about the same too since academic salaries are (in effect) set by government (through intermediaries but in reality government ministers) and much the same across the UK. A lecturer “costs” roughly £50 k pa (they don’t get that in salary but once you add in pension costs and NI contributions etc that’s a rough guide). A professor can cost upwards of £70k pa (to well over £100k). In most universities (yours might be different) 75%+ of these salaries are paid by tuition fees and government subsidies for teaching (the rest mostly comes from generic research income resulting from RAE/REF scores).
So you won’t get a “market” until universities can vary costs and salaries (and become more “efficient” by having fewer people teaching you the same course…).
One question that ought to be asked is: if 75% of funding for salaries comes from teaching-related income, do university staff devote three quarters of their time to teaching and related activities?
In many cases, the answer is “not anywhere near”. That’s not necessarily a bad thing. Research is a vital activity (for the economy, for society, for humanity’s future and, indeed, for your education). However, there is a case for funding it more transparently.

Perpetually Astonished

Thank you for stating clearly the basic facts that one would expect should have informed this blogpost. I would add a few points as well. First, there is a good deal of cross-subsidy in all universities, with the teaching income from lower cost subjects subsiding higher cost ones. While a history or mathematics student may bemoan the fact that they are paying a comparatively high amount for a comparatively low cost course, they are contributing to making it possible to deliver high cost science, technology and medical courses which cost far more than £9k p/a to deliver. Universities are not shops where each ‘product’ is separately priced, and so everyone pays the same even if the cost of each programme varies. (Incidentally, arts courses, like Drama, are far higher cost than most humanities and many social science courses – because they need expensive facilities).
Next, most universities seek to have staff costs of between 50% and 60% of total expenditure, though some exceed this. You need also to consider the expenditure on the estate (which can be very high), student facilities, recruitment and marketing, IT and central resources like libraries.
Finally, UK universities are doing relatively well in what is a global “marketplace” for higher education. This position doesn’t come cheap.

Frank

Excellent input above. I suspect that if one did a forensic analysis of the income & expenditure of a Russell Group / Oxbridge university, one might find a large number of very strange things. I assume that, with time, the cross-subsidies will get removed as universities specialise (and after pressure from students wanting a better financial deal). I see little benefit to historians that they are subsiding medical students. It is wrong and should cease. In addition, if the proper cost of a course is known, then the price can be set appropriately. At the moment, people bandy that a medical course costs £27K pa. This seems very high (since you are teaching in bulk), but suggests that the proper price for “selling” this on the global market ought to be significantly higher.
The other part of the debate is graduate slots. Oxbridge (and perhaps others) appears to have got round the limits on undergraduate places by significantly growing the number of graduates doing post-grad degrees. Since the undergraduate places are no longer limited, you would expect the universities to do a proper analysis of their core purpose (eg promote undergraduate places to the max, or 50/50, or 75/25, etc). It is hard to see why the government should subsidise some course of study, but reasonably clear that they should for categories (eg medicine, science, engineering ?) where the costs might otherwise choke off applicants.

Frank

The Guardian states that 74% of people doing post grad degrees in 2012-2013 were foreigners. This may be good for income but it is not great for British kids. Also reminds me of those Oxford Colleges were virtually all the undergraduates were foreigners and yet these colleges still got subsidies from the government via the university!

Gwangi

Yes, academic’s salaries are way too high, especially in the regions where academics regularly earn £50 or 60k. New and younger academics are expected to live in slums on hourly rate contracts while the senior academics leech off taxpayers money like the aca-parasites they are.